Singapore to Increase Central Provident Fund Contributions From 2022
Singapore will increase the Central Provident Fund (CPF) contribution rates for employees aged 55 to 70 years from January 1, 2022.
The increase was due in January 2021 but was deferred to 2022 to enable employers to manage overhead costs amid the pandemic. Additionally, the government plans to gradually increase CPF contributions for those aged 55 to 70 years over the coming decade to strengthen their retirement adequacy, and strengthen Singapore’s businesses’ foundations for older work employment. From January 2022, CPF contributions will have increased between 1.5 and two percent of total wages.
The CPF is a mandatory employment-based social security saving scheme funded by contributions from employers and employees. It is a key pillar of Singapore’s social security system and serves to meet the country’s healthcare, retirement, and housing needs. The CPF is administered by the Central provident fund Board, a statutory board under the Ministry of Manpower.
What will be the new contribution rates?
The new rates will only apply to employees aged 55 to 70 years earning more than S$750 (US$557) per month, starting from January 1, 2022.
Raising the retirement and re-employment ages
In addition to increasing CPF contributions, the government is expected to increase the retirement age from 62 to 63 by July 2022, and eventually to 65 by 2030. The re-employment age is also set to increase from 67 to 68 by 2022 and to 70 by 2030.
The re-employment contract should be for at least one year and is renewable every year up to the age of 67. Employers are not allowed to dismiss an employee based on the employee’s age.
By increasing the retirement age, the government hopes older employees will have the choice to work longer and build more savings for their retirement. Singapore’s Manpower Minister Josephine Teo also noted that older workers had fallen behind younger ones when it came to their accumulated CPF savings and median incomes; this has been further exacerbated due to the pandemic.
Government support provided
To assist employers to hire and retain older workers during the pandemic, the government introduced the S$1.3 billion (US$967 million) Senior Worker Support Package in July 2020, which comprises the Senior Worker Early Adopter Grant and the Part-time Re-employment Grant.
The package provides funding to support companies to raise their internal retirement and re-employment ages, and since its inception, the package has assisted over 1,700 businesses and 17,000 senior workers, with the government looking to provide an additional S$223 million (US$165 million) in funding.
Singapore’s aging labor force
The government’s upcoming changes to its employment terms highlight the country’s demographic reality of an aging society. A report by Oxford Economics stated that Singapore’s labor supply will shrink by 1.7 percentage points up to 2026, and by a further 2.5 percentage points in the following decade.
By 2030, one in four Singaporeans will be 65 and older, resulting in talent shortages, and hurting the country’s productivity and competitiveness. This will also impact public finances as more spending is required on healthcare and pensions besides the shrinking taxpayer base.
As such, the government is encouraging businesses to tap into the middle-aged and older workforce by taking advantage of government initiatives to retrain this demographic cohort. Firms that employ a local worker aged 40 years and above and who have undertaken an eligible training or reskilling program are eligible for an incentive of 40 percent of the person’s salary covered for six months, capped at S$12,000 (US$8,925).
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